[PPT] - Model Year and Vehicle Rating LeRoy Boison FCAS MAAA LeRoy Boison, PowerPoint Presentation

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Model Year and Vehicle Rating

LeRoy Boison FCAS MAAA LeRoy Boison, FCAS, MAAA CAS RPM Seminar March 22, 2011 New Orleans New Orleans

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Experience the Pinnacle Difference!

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Discussion Topics

Model year rating Vehicle rating Liability rating GLM li ti GLM applications Commercial auto applications pp

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Distant Yesterday

Based exclusively upon MSRP. A li d l 1st Applied only to 1st party property coverages. Same Symbol for both comprehensive and collision. Combined with “Age” as opposed to “Model Year” Rating Combined with Age as opposed to Model Year Rating.

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Yesterday

Late 70’s 2 significant changes

I t d ti f M d l Y R ti

Introduction of Model Year Rating Introduction of Damageability/Repairability into Symbol

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Model Year Rating

Model Age Factor Year Factor X + 2 (1.05)(1.05) ( )( ) X + 1 1.05 1 1 00 X 1 00 1 1.00 X 1.00 2,3 0.85 X - 1 0.95 4,5 0.75 X - 2 0.90 6 & over 0.65 X - 3 0.85

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Model Year Rating

Typically uses constant multiplicative relationship between model years model years Typically 5% for Comprehensive and Collision Typically 5% for Comprehensive and Collision Limited to X model years with catch all for older vehicles

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Model Year Rating

Created a mechanism by which individual vehicle model years could be recognized not really utilized except by several could be recognized – not really utilized except by several innovators. Some companies are using for liability coverages – inconsistent - some positive, some negative – overlaps with mileage

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Model Year

The ability to use model year effectively together with specific models has not been realized models has not been realized.

E.G. If the 1995 Honda Civic or 2007 Toyota Corolla has the

y highest theft rate as recently published – shouldn’t it have a higher rate than the later models?

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Stolen Cars Vary By Model Year

Here are the 10 most stolen vehicles as reported by the NICB — the number in parentheses is the model year most stolen: Honda Civic (1995) Honda Accord (1991) Toyota Camry (1989) Ford F-150 (1997) Ch l C/K 1500 (1994) Chevrolet C/K 1500 (1994) Acura Integra (1994) Dodge Ram Pickup (2004) Dodge Ram Pickup (2004) Nissan Sentra (1994) Toyota Pickup (1988) y p ( ) Toyota Corolla (2007)

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Why older cars?

Mid-1990 Hondas and Toyotas frequently dominate the yearly top 10 stolen car list Because they are so popular there is top-10 stolen car list. Because they are so popular, there is always a market for parts. Thieves like to steal them and chop them up, which can bring in more money than selling the car whole.

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Progressive Rating

Class MM

Symbol

1995 Honda Civic HC1 0.99 5 1989 T t C TC1 0 96 8 1989 Toyota Camry TC1 0.96 8 1991 Honda Accord HA1 1.23 11 92-93 factor, 1.33 for '94-98, drops to .75 in 98 1994 Dodge Caravan DG1 0.99 8 1990 Acura Integra AI1 0 99 14 1990 Acura Integra AI1 0.99 14 1991 Nissan Sentra NS1 0.9 5

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Immobilizer

1999 and 2000 Honda Civics do not come with an electronic immobilizer however all Hondas from 2001 and onward are immobilizer, however all Hondas from 2001 and onward are equipped with an immobilizer. Immobilizers became mandatory on all new cars sold beginning September 2007. The devices enable an engine computer to recognize an The devices enable an engine computer to recognize an electronic code in the key. If the code in the key and the engine don't match exactly, the vehicle can't be started.

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Vehicle Rating

New vehicles are usually rated by “comparison to similar” existing vehicle becoming less accurate as new different existing vehicle – becoming less accurate as new, different vehicle type are being introduced.

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Significant Differences By Company for New Models

Rate Relativity Comparison For New Models

2.00 2.00 1.50 elativity 1.00 R 0.50 Audi Tt Quattro 6 cyl Cadillac Escalade 8 cyl Nissan Xterra Xe/Se 4 cyl Model

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Significant Differences By Company for New Models

Difference in rates > 80% The Porsche Boxster symbol assignment from inception dropped at least 5 symbols. dropped at least 5 symbols.

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Significant Differences By Company for Most Popular Models

Rate Relativity Comparison For Popular Vehicles - 4 Door Sedans

1.00 1.10 0.80 0.90 Relativity 0.60 0.70 0.50

Chevrolet Cavalier 4 cyl Chevrolet Lumina 6 cyl Ford Focus Lx 4 cyl Ford Taurus Lx 6 cyl Honda Accord Dx 4 cyl Honda Civic Dx 4 cyl Nissan Altima Xe/Gxe/Gle/Se 4 cyl Pontiac Grand Am Se2 6 cyl Toyota Camry Ce/Le/Xle 6 cyl Volkswagen New Jetta Gls 6 cyl

Model

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Significant Differences By Company for Most Popular Models

Smallest difference with high and low company is 16% Greatest difference is 44% Average difference is 28%

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Sports/Luxury Models

Variations for “published” rates are 32% to 137% Differences may be greater as some companies do not provide “published” rates for these models provide published rates for these models

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Differences Exist By Type of Models

Relative Rate Relationship Between Wagons and Sedans

1 30 1.20 1.30

Relativity

1.00 1.10

ativity to Sedan

0 80 0.90

tio of Wagon Rel

0.70 0.80 A B C D E F G

Rat Model

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Differences Exist By Type of Models

Relative Rate Relationship Between 2-Door and 4-Door Vehicles

1.30 1.20 r Relativit 1.00 1.10 lativity to 2-Doo 0 80 0.90 atio of 4-Door Re 0.70 0.80 A B C D E Ra Model

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Percent of Collision Claims by Point of Impact

By Vehicle Type

28.2 11 3 26.6 11 6 27.3 3.0 10.7 10.7 4.4 2.8 11.3 11.6 4.4 3.3 12.4 12.7 5.0 3.0 5.5 2.4 3.9 2.8 4.3 3.7 5.0 2.5 2.9 3.4 3.5 5.3 14 8 5.8 5.7 20 6 5.3 5.4 5 4.6 14.8 20.6 15.4

Passenger cars Pickups Utility vehicles

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Percent of Property Damage Liability Claims by Point of Impact by Vehicle Type

7 9 13.6 9 7 6.3 12.4 7 2 6.4 10.8 7 0 2.7 7.9 9.7 4.4 2.5 6.3 7.2 3.7 2.3 7.0 3.0 3.1 3.5 3.4 3.8 2.4 2.9 4.1 3.4 4.3 3.2 3.5 2.6 6.3 36.6 4.7 7.8 39 2 6.3 7.2 46 7 5.3 36 6 39.2 46.7

Passenger cars Pickups Utility vehicles

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Solution to Rear Accidents

Back up avoidance device

b b b

beep, beep, beep camera

Mirror Mirror

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Electronic Stability Control

Electronic stability control could prevent nearly one-third of all fatal crashes and reduce rollover risk by as much as 80%; all fatal crashes and reduce rollover risk by as much as 80%; effect is found on single- and multiple-vehicle crashes

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ESC - availability

ESC is standard on 40 percent of 2006 passenger vehicle models and optional on another 15 percent It's standard on models and optional on another 15 percent. It s standard on every 2006 Audi, BMW, Infiniti, Mercedes, and Porsche. Another 8 vehicle makes (Cadillac, Jaguar, Land Rover, Lexus, Mini Toyota Volkswagen and Volvo) offer at least optional Mini, Toyota, Volkswagen, and Volvo) offer at least optional ESC on all of their models. But ESC, standard or optional, is limited to 25 percent or fewer models from Chevrolet, Dodge, Ford Hummer Mazda Mitsubishi Saturn Subaru and Suzuki Ford, Hummer, Mazda, Mitsubishi, Saturn, Subaru, and Suzuki

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Aluminum Parts, Hybrid Cars Boost Crash Costs

Auto repair costs are going up in part because of changes in parts and new more complex vehicles an insurance parts and new, more complex vehicles, an insurance information management firm said.

(NU Online News Service, March 3, 12:25 p.m. EST)

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Edmunds - Top 10 High-Tech Car Safety Technologies

1. Tire-pressure monitoring

2 Adaptive cruise control/collision mitigation

2. Adaptive cruise control/collision mitigation
3. Blind-spot detection/side assist/collision warning
4. Lane-departure warning/wake-you-up safety
4. Lane departure warning/wake you up safety
5. Rollover prevention/mitigation
6. Occupant-sensitive/dual-stage airbags
7. Emergency brake assist/collision mitigation
8. Adaptive headlights and/or night-vision assist
9. Rearview camera
10. Emergency response

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Liability Vehicle Rating

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ISO Liability Rating

GLM analysis based upon:

M f t

Manufacturer Chassis type Weight

g

Horsepower Wheelbase Height Width

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ISO Liability Rating

2-way GLM analysis using combination of curb weight and chassis type (although manufacturer had highest r2) chassis type (although manufacturer had highest r2).

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ISO Liability Rating

Manufacturer was the most significant variable but rejected based upon credibility concerns based upon credibility concerns. Chassis type was very significant thus 2-way GLM used to test chassis type in combination with other variables other than Manufacturer. Best fit achieved with Weight and Chassis type.

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ISO Liability Rating

For liability – curb weight indications are different depending

n chassis type
n chassis type –.

Frame – predicted relativity increases as weight increases. UniBody - predicted relativity decreases as weight increases.

First Party Coverages - predicted relativity always decreases as weight increases.

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Predictive Modeling Applications g pp

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Advantages of using Vehicle Characteristics for Rating

Easier to rate newer vehicle types. M fl i f f i d h More accurate reflections of safety equipment and other vehicle characteristics. For physical damage coverages, and now Liability and PIP For physical damage coverages, and now Liability and PIP vehicle differences can account for significant differences in rates between different insureds. fl f d ff b d l Reflect specific differences by Model Year

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Considerations

Need VIN. Append external data via Polk, HLDI, ISO, CARFAX or other.

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Possible Vehicle Characteristics

Model year High performance code Roof type Model year High performance code Roof type Symbol Ton rating Transmission Daytime running lights Vehicle existing damage Theft deterrence device Anti lock brakes Anti theft device New / Used indicator ESC (Electronic stability control) Emergency brake assist/collision mitigation Ai b / i i C i Blind-spot detection/side i / lli i i Airbags/passive restraint Cost price new assist/collision warning Height, weight, wheel base Body type Tire Pressure Monitoring Engine type/size Emergency response # of doors Make Lane Keeping Backup avoidance Model Adaptive headlights and/or night-vision assist Construction Segmentation Fuel type Segmentation Fuel type

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Additional Non-traditional Characteristics

Branded title L h f l hi Length of last ownership Salvaged Prior damage Prior damage Was vehicle repossessed Lien/Lease /

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Segmentation Example

Compact Pickup Full Size Utility Basic Economy (Car) Mid i Pi k Sport Utility Lower Midsize (Car) Midsize Pickup Sport Utility Lower Midsize (Car) Fullsize Pickup Mini Sport Utility Upper Midsize (Car) M di /H T k U Mid i S i lt (C ) Heavy Duty Pickup Medium/Heavy Trucks Upper Midsize Specialty (Car) Minivan (Passenger) Basic Luxury (Car) Traditional Large (Car) Minivan (Cargo) Middle Luxury (Car) Basic Sporty (Car) Passenger Van Prestige Luxury (Car) Middle Sporty (Car) Full Size Van (Cargo) Entry Level (Car) Prestige Sporty (Car)

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Vehicle Class - Indicated Pure Prem Relativities

2.50 3.00 3.50 1.50 2.00

Relativity

0.50

1.00 M i s s i n g M i n i 4 D

r

M i n i S p e c i a l t y C a r M i n i S t a t i

n

W a g

n

S m a l l 4 D

r

S m a l l L u x u r y S U V S m a l l S U V S m a l l S p e c i a l t y T r u c k S m a l l S t a t i

n

W a g

n

M i d s i z e 4 D

r

M i d s i z e L u x u r y S U V M i d s i z e S p e c i a l t y C a r M i d s i z e S p

r

t s L a r g e 2 D

r

L a r g e C a r g

/

P a s s e n g e L a r g e L u x u r y S U V L a r g e P i c k u p L a r g e S p e c i a l t y T r u c k L a r g e S t a t i

n

W a g

n

V e r y L a r g e 4 D

r

V e r y L a r g e L u x u r y S U V V e r y L a r g e P i c k u p V e r y L a r g e S p e c i a l t y T r u c k V e BI PD COLL COMP PIP

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Anti_lock_brakes

1.60 1.80 1.20 1.40 1.60 0.80 1.00

Relativity

0 20 0.40 0.60 0.00 0.20 <missing> Not available 4 wheel standard Rear only standard ABS standard, wheels unknown 4 wheel

ptional

Rear only

ptional

ABS optional, wheels unknown BI PD PIP COMP COLL MP

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Results – Electronic Stability Control

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Results – Model Year

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Results – Base List Price (Polk)

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Results – ISO Symbols

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Results – ISO Symbols (Liability)

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Results – ISO Symbols (PIP)

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Good Timing to Evaluate Change

ISO in process of changing physical damage symbols from 27 to 75 to 75 ISO will no longer have access to HLDI data ISO will no longer have access to HLDI data

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Effect of Latest Economic Crisis on Rating

New cars sales for January ’09 down 40-50% C h f l k Cash for clunkers Premium trend effects Potential effect on older cars which are being kept longer Potential effect on older cars which are being kept longer More fuel efficient cars

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Commercial Auto Applications

VIN decoding works as well in CA as PPA

Truck VINs define their ICC weight class (which is more detailed Truck VINs define their ICC weight class (which is more detailed

than ISO weight classes)

Truck VINs define their ICC weight class (which is more detailed

than ISO weight classes) than ISO weight classes)

Private passenger types (cars) are not typically symbol rated in

CA and either can be or the vehicle characteristics can be used to create a simplified symbol system to create a simplified symbol system.

Many of the characteristics that PPA VIN decoding returns are

also available and valuable for CA (passive restraints, antilock breaks engine size model year) breaks, engine size, model year)

However, VIN only contains information about the truck as it left

the assembly line and many features are added post production

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Not All Trucks are the Same

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Commercial Auto Applications

The type of container on a truck (aka body type) also matters (refrigerator dump flatbed box tanker cranes and specialize (refrigerator, dump, flatbed, box, tanker, cranes and specialize equipment (e.g. scaffolding for ladders etc.)) The type of container on a trailer also matters (refrigerator, low boy, flatbed, box, tanker) as does what kind of cargo you're hauling (coiled steel, chemicals, grain, perishables, less than trailer load (LTL) sand and gravel moving and storage) than trailer load (LTL), sand and gravel, moving and storage)

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Types of Loads

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Commercial Auto Applications

Mileage information is typically not available/verifiable unless the insured is engaged in for hire trucking however Standard the insured is engaged in for hire trucking, however, Standard Industrial Classification (SIC) codes can be a strong indicator of mileage/vehicle use. For example, contractors normally drive to the jobsite while wholesalers tend to drive routes to to the jobsite while wholesalers tend to drive routes to retailers all day and florists make deliveries.

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Commercial Auto Applications

Personal use is also a key factor (pickup trucks and company cars with a cooler full of beer at a softball field on Thursday cars with a cooler full of beer at a softball field on Thursday night are a real and difficult risk). Unfortunately, it is hard to verify until after a claim, especially on small risk where a fenced garaging location may not be verified due to policy fenced garaging location may not be verified due to policy size.

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Vehicle Weight

ISO’s class plan has four vehicle weight classes: Light, Medium Heavy and Extra Heavy Medium, Heavy and Extra-Heavy. Alternatively, the Interstate Commerce Commission (ICC) developed eight weight classes that do a much better job of grouping similar vehicles that are readily verifiable using VINs.

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ICC Weight Classes

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Vehicle Weight

This verifiable approach to vehicle weight also addresses popular misconceptions regarding specific vehicle types popular misconceptions regarding specific vehicle types. The most common misperception is that all pick-up trucks are “Light.” Most large pickup trucks have gross vehicle weights well in excess of the “Light” limit of 10,000 pounds.

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National Underwriter – July, 2007

“From a physical damage perspective, new designs in trucks to reduce their weight and streamline them for fuel efficiency to reduce their weight and streamline them for fuel efficiency have led to more damage to the vehicle in lower speed collisions. Where a steel bumper used to protect the tractor with Where a steel bumper used to protect the tractor with minimal front-end damage, now an entire engine hood must be replaced with engine parts, which are now protected”

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